Understanding the mechanisms that regulate hematopoietic stem cell development is essential for further improvement of hematopoietic stem cell use in oncology and gene therapy. The generation of hematopoiesis in culture from human embryonic stem (hES) cells provides a unique opportunity to elucidate mechanisms of an early hematopoietic commitment and development in humans. We demonstrated that hematopoietic differentiation of hES cells on OP9 bone marrow stromal cells recapitulates many aspects of the onset of embryonal hematopoiesis, including formation of hemangioblast, endothelial cells, as well primitive and definitive hematopoietic progenitors capable of lympho-myeloid differentiation. In addition, we found that activation canonical Wnt pathway in hES cells plays an important role in hemangioblast development. The overall goal of this proposal is to identify and characterize the earliest hematoendothelial progenitors in humans to specify cellular and molecular pathways leading to development and diversification of hematopoietic precursors. In the first specific aim, we will identify phenotypic features and demonstrate clonality of hemangioblast in vitro and in vivo using single cell deposition, and limiting dilution assays, and multicolor hES cell line. In the second specific aim, we will identify hematopoietic progenitors directly derived form hemogenic endothelium using Cre/loxP based genetic tracing system. And finally, the mechanistic studies proposed in third specific aim will define the role Wnt/p-catenin signaling in hematoendothelial development. We will i) demonstrate that canonical Wnt signaling is active during hemangioblast development from hES cells;ii) evaluate the stage dependent effect of inhibition and activation of Wnt signaling on hematoendothelial development using hES cell line conditionally expressing |3-catenin and Wnt signaling inhibitors;iii) study the effect of Wnt/|3-catenin signaling activation on engraftment potential of hES cell-derived hemangioblast and hematopoietic progenitors. The proposed studies will provide new insight into how the hematopoietic and endothelial lineages develop in humans, and could ultimately lead to novel regenerative therapies for diseases of the blood and vascular system.